Legal Representative in China: How to Stay Compliant in 2023

Limited liability companies registered in China must appoint a legal representative. They represent the company in exercising its rights and obligations. At the same time, legal representatives are exposed to potential compliance risks if the company’s activities (or their own actions) violate the law, administrative regulations, or the company’s articles of association. The Ecovis experts from the ECOVIS European China desk explain the role of legal representative, supervisor, or board member in China, as well as the compliance risk and appropriate measures to manage and minimise this risk.

The position of legal representative entails numerous powers and responsibilities. In accordance with Article 13 of the Company Law, this position may only be held by either the Chairman of the Board of Directors, the Company Manager, or the Executive Director. A legal representative is granted a broad scope of authority in the company’s daily operations such as conserving the company’s assets, confirming transactions, and authorising legal representation and litigation.

While it is important that companies protect themselves against misuse of the position by the legal representative, it is just as important that the individual taking over that position is aware of the compliance risk associated with this role. The legal representative may be subject to civil liabilities, administrative sanctions or penalties, or even face criminal charges if the company is involved in actions considered illegal or beyond its approved range of operations. Restrictions or disciplinary measures should also not be underestimated.

We advise our clients’ companies on compliance with external regulations and internal guidelines.

Richard Hoffmann, Lawyer, Ecovis Heidelberg, Germany

Why compliance matters

Civil liability covers actions such as damaging a company’s interests and compensation liabilities. If the legal representative is acting on behalf of the company, the company bears the resulting consequences. Hence, the company should also carry the civil liability.

Ensuring compliance in specific areas

Under certain circumstances, liability is established whether the offence was intended or not. In other words, even though a legal representative may not orchestrate a breach, he/she may still be found liable unless it can be proven that the legal representative was not aware of the harmful acts, did not participate in them, or voted against the decision at board meetings.

Of course, the rights of legal representatives are protected if they comply with the law, regulations and the company’s articles of association and act to protect the company’s interests in a diligent and loyal manner. Yet in practice, China’s laws and regulations within its complicated legal environment can seem daunting and extensive, especially for foreign companies and their legal representatives. Companies should therefore seek external expert advice in order to understand and correctly comply with the existing regulations.

How we can help you

The advisory activities at Ecovis Heidelberg & Ecovis Ruide Shanghai are tailored to the requirements of internationally active enterprises which require tax advisers, accountants, auditors, and lawyers. Our experts work independently, objectively, and reliably. Ecovis Heidelberg is the trusted partner of several embassies and chambers of commerce in China. The Ecovis tax experts and legal advisers work closely together to ensure that our clients always obtain the greatest benefit from our in-depth knowledge and receive the newest updates about changes in laws or regulations in order to adjust their businesses faster than others. The two locations in Germany and China enable us to adapt quickly to the needs of our customers in order to remove cultural barriers and respond quickly to our clients’ needs.

For further information please contact:

Richard Hoffmann, Lawyer, Ecovis Heidelberg, Germany
Email: richard.hoffmann@ecovis.com